Shareholder is Responsible Party for Trust Fund

As Florida tax attorney’s we are often asked the question as to whether the IRS can come after an officer of a company personally for taxes. As a very general rule, the state or the IRS can only come after an officer personally if the taxes are trust fund taxes. This means taxes that an individually is holding on behalf of the state. The classic example is employment taxes held by the employer for the government. Another common scenario is a company collects sales tax on behalf of the state it is considered the state’s money held in trust by the company, and personal liability becomes an issue.

Whether one is dealing with the IRS or a state for trust fund taxes, the government can come after the “responsible party.” Generally, the government comes after the officers of a company or the person signing the checks to determine who the responsible party is. But what about a corporate shareholder? Can the government come after someone who is merely a shareholder in the company as a responsible party?

In late August 2013, the Tax Court heard a case involving this very issue is Hellman v. Comm’n, 106 T.C.M. 138 ( Aug. 21, 2013) In the case, the IRS determined the shareholder, Hellman, was the responsible party and went after Hellman’s assets personally. There was a pending court case to determine whether Hellman was in fact willfully failing to pay the taxes as required by section 6672, IRC. The Taxpayer challenged the refund and said this was unfair.

The Tax Court believed that this procedure was fair. Specifically, it ruled that the IRS did not abuse its discretion in its attempt to collect the unpaid tax while the court action was pending. Further, it said the 6672 penalty was distinct from the trust fund liability.

This case serves as another reminder that the IRS will come after you personally for trust fund liability and merely filing in court will not stop them.

About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA , based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email JerryDonnini@Floridasalestax.com or phone at 954-642-9390. Please also visit his sales tax support blog , Facebook, and Twitter.